Gold sees loses despite falling consumer confidence

Precious metals trading opened on a defensive note once again this morning, as currency markets saw the US dollar as well as the euro (at slightly different times) benefiting from hawkish jawboning coming from the official sector. Additional signs of improvement in the US economy are, one-by-one, undermining the exuberance that has been the signature sentiment in various commodity trades and are, one-by-one, shifting the tide in favor of a higher interest rate environment (one that is not so conducive to aggressive betting in this niche).

Spot gold opened with a $6.70 per ounce loss in New York on Tuesday, with a quote on the bid-side at $1,414.20 as the greenback was slightly higher on the index (at 76.29) and as crude oil lost 83 cents to drop to the 103.15 mark per barrel. The euro was not faring badly either, as it traded at 1.406 at about the same time. More on why this was so, will follow below.

The gold market timers’ levels optimism keeps hovering near very highly bullish levels and contrarian analysis construes this as a possibly worrisome development for the yellow metal’s near-term price direction. Meanwhile, Elliott Wave-based market parsing offers the possibility that the $1,448.14 high seen last Thursday may have already set into motion a multi-month-long decline in prices – one which could be punctuated by stops around $1,380 but one whose ultimate aim points towards the $1,307 and possibly down towards the $1,043 area. If the $1,448 zone is once again attained, there is scope for the bulls to try to reach for the $1,525 high water mark in bullion.

Silver prices also declined in New York this morning, losing 43 cents at the market’s opening bell to start the session off at $36.73 the ounce. Platinum and palladium both fell modestly, with the former slipping $3 to $1,736.00 and the latter falling $6 to $738.00 per ounce. No change was reported in rhodium with a $2,330.00 bid quote. The EU this morning proposed the banning of all petrol-powered vehicles from all of its cities by the year 2050.

The proposal (really a plan) would entail shifting 50% of current travelers to and from EU cities to rail and water-based transportation systems. The plan sounds mighty ambitious but, if it becomes a reality, the effects on the platinum-group metals could be significant. Forcing EU residents to effectively stop using their cars is not an insignificant market development. Hopefully, the ‘slack’ from any such a shift in transportation modes would be offset by demand from the BRICS…

Yet another hawkish assertion relating to US monetary policy from a Federal Reserve policymaker was made this morning, and the comment lifted the US dollar slightly on the trade-weighted index following a decline it experienced in the wake of certain other (similar in nature but euro-related) remarks made by ECB President Trichet. In the strongest wording yet to emerge from a Fed official this year, St. Louis Fed President James Bullard said that the US central bank “may not be willing or able to wait until all global uncertainties are resolved to begin normalizing policy.”

Translation: US interest rate hikes are on the horizon, and sooner than some might like them to materialize. Mr. Bullard also noted that markets ought not to expect US monetary policy to remain ultra-accommodative indefinitely and that "discussion of the normalization of U.S. policy will likely return as the key issue in 2011." Such “normalization” of US monetary policy has been a hotly contested topic in commodities’ circles for some time now, however the aggressive speculation in the niche has hardly abated in recent months while the opportunity to utilize dollars borrowed at virtually no cost remained at hand. By alluding to the inevitability of hikes in interest rates, Mr. Bullard’s words could be the one signal by which the speculative crowd might wish to consider itself as having been placed “on notice.”